Kouzas v Sanghvi [2003] VSC 100

Supreme Court of Victoria|2003-05-02|Before: Byrne J

CONTRACT - uncertainty - repudiation - anticipatory breach - whether plaintiff ready and willing to perform his contractual obligations.

For the Plaintiff and First Defendant by Counterclaim

The agreement provided for its termination in three circumstances:

"1. The purchaser is to obtain written approval by 4pm on Friday 19th April 2002 for a loan to enable the purchaser to purchase the Pharmacy Business. The purchaser may end these Heads of Agreement if the loan is not approved by 4pm on Friday 19th April 2002 only if the purchaser - (a) has made immediate application for the loan; (b) has done everything reasonably required to obtain approval of the loan; (c) serves written notice ending these Heads of Agreement on or before 4pm on Friday 19th April 2002; and (d) is not in default under any other condition of these Heads of Agreement when the written notice is given. All money paid by the purchaser (together with any interest thereon) must be immediately refunded to the purchaser if these Heads of Agreement are ended in accordance with this paragraph. ... 3. If applicable, the purchaser is to receive from the vendor a copy of the Lease relevant to the Pharmacy Business. By the Settlement Date, the vendor and the purchaser must take all reasonable steps to obtain the Landlord's written consent to the transfer or assignment of the Lease from the vendor to the purchaser. If, after the vendor and the purchaser have taken all reasonable steps relevant to the Landlord, and the Landlord refuses to agree to the transfer or assignment, these Heads of Agreement may be ended by either party in which case all money paid by the purchaser (together with any interest thereon) must be immediately refunded to the purchaser. ... 7. The purchaser is entitled to undertake and complete a due diligence investigation in relation to the Pharmacy Business which investigation must be undertaken and completed by 4 pm on Friday 19th April 2002. For this purpose, the vendor shall immediately provide (or arrange the provision of) all information to enable the purchaser to undertake the due diligence investigation. If the purchaser is not satisfied with the results of his due diligence investigation, the purchaser may terminate these Heads of Agreement by notice in writing to the vendor at any time on or before 4 pm on Friday 19th April 2002. In that event, all money paid by the purchaser (together with any interest thereon) must be immediately refunded to the purchaser."

No notice pursuant to cl. 1 or cl. 7 was served by 19 April 2002, or at all.

On Friday 10 May 2002, the purchaser's solicitor wrote repudiating the agreement or, perhaps, terminating it. 13 May came and went with no settlement. It is common ground that the agreement was then at an end. The vendor's position is that it was terminated on 15 May 2002 by his solicitors' letter of that date accepting the purchaser's repudiation of 10 May. The purchaser's position is that it was terminated on 10 May. The vendor in this proceeding sues for the balance of the deposit and damages for loss of the bargain. The purchaser seeks recovery of the preliminary deposit from the vendor and, against PBS, he seeks the preliminary deposit and, in effect, an indemnity against any liability he may have to the vendor.

For the most part, the factual contentions of the vendor were not in issue. Attention focussed at trial on the matters raised by the purchaser in his defence and counterclaim[1] which I summarise as follows:

(a) The agreement was uncertain and incomplete and therefore unenforceable.[2]

(b) The vendor's entitlement to the balance of the deposit arises only where formal contracts were entered into, and this event has not occurred.[3]

(c) The vendor was in breach of various express and implied terms of the agreement and thereby repudiated it, which repudiation the purchaser accepted by the letter of 10 May 2002.[4]

(d) The vendor was, unbeknown to the purchaser, not ready and willing to complete the agreement on 13 May 2002, and the purchaser was therefore entitled to terminate the contract on 10 May 2002 which he did by letter of that date.[5]

(e) On 9 April 2002, John James King on behalf of the broker, the agent of the vendor, represented to Mr Sanghvi that the contractual requirement that notices to terminate under cl. 1 must be given by 19 April 2002 was no longer binding.[6] By the application of the doctrines of estoppel or waiver the contract became one subject to finance, and finance was never approved. Accordingly, the contract is at an end.[7]

(f) Alternatively to (e), the representations of Mr King were misleading or deceptive conduct contrary to s. 9 of the Fair Trading Act, as a consequence of which the Court should order pursuant to s. 158 that the agreement is void and that the preliminary deposit be refunded.[8]

(g) The vendor was not ready and willing to perform its contractual obligations on 13 May 2002 and is therefore not entitled to bring a claim for damages for the purchaser's breach.[9]

The involvement of the broker as a party arose from the reply of the vendor that, if the alleged representations were made, then Mr King and the broker acted without authority so that the vendor was not bound. If this plea succeeds then the purchaser seeks relief against the broker for misleading and deceptive conduct contrary to s. 52 of the Trade Practices Act 1974.[10]

The issues for determination at the trial before me were all issues other than quantification of damages.

The purchaser and the vendor were both experienced and apparently successful businessmen. Mr Sanghvi said that he had been a pharmacist in England before he came to Melbourne in 1983. He had bought and sold three pharmacies since 1984 and, at the time of the present transaction, he owned a pharmacy at Neville Avenue, Laverton, one at Sanctuary Lakes, Point Cook and one at Hogans Corner, Hopper's Crossing. Mr Kouzas also owned three pharmacies at that time including the Central Square Pharmacy.

The factual basis for the litigation cannot be properly appreciated without an acknowledgment that the price of $7M for the pharmacy was excessive, and very much so. It is neither necessary, desirable nor possible for me to make any finding as to the actual value of the pharmacy as at 26 March 2002, and I do not do so. The evidence before me, however, shows that, upon receipt of some summary sales figures on 13 March 2002 or shortly thereafter, Mr Sanghvi believed that the value of the business for which the vendor was asking $7M was very much less than that figure. Having failed to persuade the vendor, directly or through the broker, to reduce the asking price, the purchaser nevertheless entered into the Heads of Agreement on 26 March 2002 to purchase the pharmacy for $7M.

Finance for the purchase of pharmacies frequently involves the assistance of one of the two principal wholesale pharmaceutical suppliers trading in Victoria. These two companies were referred to at the trial simply as Sigma and Faulding. The latter company has been taken over by Mayne Health Pharmacy Services and I shall refer to it as Mayne Health notwithstanding that the witnesses often used the old name. It seems that one or other of these wholesalers would often assist purchasing pharmacists by providing a guarantee of a loan which the pharmacist would obtain from a lending institution. Since the wholesalers are companies of considerable substance, such a guarantee would provide ample security for the lending institution in case of default. Accordingly, its principal consideration would be the ability of the borrower to service the loan. This, of course, means that the wholesaler itself would be the one primarily concerned that the pharmacist could service the loan and, in the case of default, that the pharmacist had provided security sufficient to protect the guarantor in the event that it was called upon to answer the guarantee. Furthermore, the wholesaler derives a commercial benefit from providing this service since, in its guarantee agreement, it binds the pharmacist to purchase its products and, moreover, the pharmacist gives to it or its nominee the right of first refusal in the event that the pharmacy is sold. Perhaps for this reason, wholesalers were often very generous in granting this assistance. Mr Sanghvi told me that Sigma had sometimes guaranteed for him up to 100 percent of the purchase price. From the buying pharmacist's point of view, this guarantee practice is an obvious benefit, but it also means that the pharmacist must satisfy the prudential requirements both of its bank or other lending institution and those of the wholesaler guarantor.

The Central Square Pharmacy had been purchased by Mr Kouzas in 1999 with the assistance of Mayne Health. It was, accordingly, a Mayne Health pharmacy. The purchaser's pharmacies in March 2002 were tied to Sigma. In his dealings with Sigma, Mr Sanghvi had used the services of an accountant, Thomas Kwok Boon Lee. Mr Lee acted for approximately 20 pharmacists who controlled 40 to 45 pharmacies. He was and is an experienced accountant with a knowledge of the special requirements of the pharmacy profession and most of his clients were Sigma pharmacists. Mr Lee had acted as the general accountant for Mr Sanghvi for some 10 years. He told me that, when acting for a purchasing pharmacist, it was common for him to be provided with an information package from Sigma or Mayne Health to enable the finance proposal to be presented to it. He was also usually asked to value the pharmacy and to carry out a due diligence assessment for the purposes of the purchase and to negotiate the finance support required from the drug wholesaler.

With respect to the purchase of the Central Square Pharmacy, Mr Sanghvi advised Mr Lee of his interest in becoming a purchaser some time before 26 March. When Mr Sanghvi told him the asking price was $7M, Mr Lee told Mr Sanghvi that he thought this was an excessive figure but that he would look at the figures when he received them.

On 26 March 2002, after he had agreed to the purchase, Mr Sanghvi telephoned Mr Lee asking him to call Mr King, the broker, to get from the vendor the figures necessary to value the business. The fact that Heads of Agreement had been signed was not disclosed to Mr Lee.

On 27 March 2002, Mr Lee telephoned Mr King seeking the figures for the pharmacy. Mr King said that he did not have them at this stage and invited Mr Lee to fax his request for the information he required. The fax sent by Mr Lee was short and to the point:

"To enable us to take the first step in assessing the pharmacy, could you please forward us Profit and Loss Statement and Balance Sheet for 2000 and 2001."

"Dear Thomas Thank you for your fax today. I have taken the liberty of requesting the following information as your requested information will not provide you or your client with the details that will demonstrate the financial basis upon which your client has entered into the attached Heads of Agreement. Profit and Loss to 30/6/01 and to 31/12/02 Projected Profit and Loss to 30/6/02 (given we have sold it on the basis that it will do $5 million by then). Monthly values of customer count, NHS, Front of shop Sales, Photo sales from 1/7/01 to last month. Balance sheet ending 30/6/01. Copy of Lease. Copy of rental agreement for image magic. Any information confirming Big W. The vendor confirmed that the image magic machine is rented and not on lease. Therefore, I suggest that your client continue this small rental when settlement occurs. The purchaser, your client has been informed of Faulding's now Mayne's first right clause relating to the sale of this business. Today, they where (sic) informed of the sale and advised that they have 30 days to try and replace the buyer based on the same terms and conditions as detailed in the Heads of Agreement. Your client is well aware of this clause and has discussed with me the possible approach to Faulding to help finance the deal. You may wish to discuss this with him. I felt it important to formally bring this clause to your attention, although it is well known to your client."

Mr King then collected financial information from Mr Kouzas' accountant and on 5 April he delivered them in a bundle to Mr Lee's office. The information so provided was as follows:

(1) Gross sales and total customers figures for the following period: 1 January 2000 - 31 December 2000 1 January 2001 - 31 December 2001 1 July 2001 - 31 December 2001 January 2002, February 2002 (2) Analysis of total sales and gross profits for the period 1 July 2001 to 31 December 2001. (3) Balance sheet and profit and loss accounts for the year ended 30 June 2000. (4) Script analysis reports for the periods 1 January 2001 to 31 December 2001, 1 July 2001 - 31 December 2001, January 2002 and February 2002. (5) Work load statistics for calendar years 2000 and 2001. (6) Wages figures for the period 1 July 2001 to 31 December 2001. (7) Rent figures.

There was in the bundle no profit and loss statement or balance sheet for the year ended 30 June 2001. This was noted by Mr Lee who telephoned Mr King for them on the same day. I accept Mr King's evidence that he told Mr Lee that he would try to get them and that he took the matter up with Mr Kouzas. He was told by Mr Kouzas that they had not yet been prepared because he, Kouzas, had not planned to sell the pharmacy. Mr King said he conveyed this information to Mr Sanghvi but it does not appear that King spoke further on this matter with Mr Lee. The financial accounts for the year ending 30 June 2001 were never produced to the purchaser. It is common ground that no further request for these accounts was made by or on behalf of Mr Sanghvi after 5 April 2002.

Meantime, Mr Sanghvi made some efforts to arrange finance for the purchase. A curious feature of this aspect of the transaction is that in these efforts neither he nor the prospective financier appears to have been concerned with the question as to the amount of finance which might be required. In evidence it appeared to be assumed that a very large part of the price would be obtained by loan. This posed a problem because the business itself was not sufficiently valuable to provide acceptable security for a loan in the order of $6M or more.

Mr Sanghvi first approached David John Flack, the State Manager (Business Development) for Mayne Health. He said he made his first approach to Mr Flack in March before he signed the Heads of Agreement and he arranged to meet Mr Flack on 5 April, the Friday after the Easter break. Mr Flack confirmed that he spoke to Mr Sanghvi before this meeting and said that he warned Mr Sanghvi that finance would be difficult to raise given the high price and that any finance would require security in addition to the assets of the pharmacy itself. Mr Sanghvi told him that his other pharmacies would be available as security. A meeting then took place at 10.00 am at Mr Sanghvi's existing pharmacy at Laverton between Mr Sanghvi, Mr Flack and a Mr Ryder from Mayne Health. Nine days had passed since the signing of the Heads of Agreement (including Easter) and there remained only 14 days for the purchaser to exercise any contractual right to withdraw under the finance clause. I find that at this meeting it was apparent to all that there was a degree of urgency about the question of finance and that Mr Flack requested and Mr Sanghvi agreed to provide financial information for the Central Square Pharmacy as well as for Mr Sanghvi's other pharmacies. Mr Sanghvi said that Mr Lee would provide this information to them. There is no evidence that Mr Sanghvi followed this up with Mr Lee. It is, however, clear that none of the information sought was ever provided to Mr Flack because on 26 April 2002, a week after the contract withdrawal date had passed, Mr Flack followed up his request by telephone and e-mail to Mr Lee. Notwithstanding this further request, the information was not provided to him.

On 8 April 2002, three days after receiving the financial information from Mr King, Mr Lee made a calculation for the purpose of preparing a rough valuation of the pharmacy. This exercise produced a figure of only $4.69M. Later, on the same day, Mr Lee had arranged a meeting for Mr Sanghvi and himself to meet Paul Roger Roast, a Senior Relationship Manager with the Westpac Bank, Mr Sanghvi's banker since 2000. Mr Sanghvi was unable to attend this meeting. Mr Lee and Mr Roast first discussed another transaction which Mr Sanghvi was undertaking and then turned to the purchase of the Central Square pharmacy. The accounts given of the meeting by the two men show that the question of finance for the purchase was discussed only in very brief and general terms. Mr Lee told the banker that the price was $7M and that his client would need at least $4.5M from the bank. Mr Lee produced the financial accounts for 2000 and he said that he was waiting for more recent figures. Mr Roast asked him to let him have these later figures as well as financial information relating to Mr Sanghvi. The matter did not go further. No further information was ever provided to the banker. This conversation was not an application by the purchaser for finance pursuant to cl. 1.

Later, on the same day, Mr Lee was contacted by Darren Woolcock of Mayne Health. Mr Woolcock told him that Mayne Health was interested in helping Mr Sanghvi put the deal together. Mr Lee told Mr Woolcock that he did not yet have the 2001 financial accounts and that he would talk to him when he had these figures. He did not disclose or offer to give to Mr Woolcock the financial information which he had already received on 5 April 2002 from Mr King. This proposal was not taken further.

Still later on the same day, Monday 8 April 2002, Mr Lee spoke by telephone with his client, Mr Sanghvi. Mr Lee reported to his client meeting with Mr Roast earlier on that day. He expressed the opinion that the pharmacy was worth no more than about $4.5M and told Mr Sanghvi that he thought finance would be difficult to raise. Mr Sanghvi suggested that they should make an approach to Sigma where Mr Sanghvi had a contact, Kevin Wishart. It was indeed Mr Wishart to whom Mr Sanghvi had first indicated his interest in purchasing the pharmacy in early March and who had referred him to Mr King, but Mr Sanghvi did not disclose to his accountant this fact nor that he knew Mr Wishart. It was agreed between Mr Sanghvi and Mr Lee, that Mr Lee would contact Mr Wishart to do a valuation and that he, Lee, would send the 2000 figures to him for this purpose. It seems, however, that Mr Wishart was on leave, so Mr Sanghvi addressed this request to Paul Meehan at Sigma.

Before I turn to the important conversation between Mr Sanghvi and Mr King which took place on the following day, it is necessary to record other background facts. I have mentioned that, before he signed the Heads of Agreement, Mr Sanghvi had on or about 13 March 2002 received a summary of projected sales figures for the pharmacy for the year ending 30 June 2002 which produced the price of $7M on a capitalisation rate of 13 percent. Mr Sanghvi said he usually adopted an 18 percent capitalisation rate which would have produced a value of only $5M. Other rules of thumb for valuing pharmacies to which I was referred, when applied to these figures, would also produce a value of about $5M.

Prior to the signing of the Heads of Agreement on 26 March, Mr Sanghvi had sought to negotiate a lower price both with Mr King and directly with Mr Kouzas. The latter proposal was on the basis that the sale be made without the broker's intervention and presumably without the broker's commission. These efforts were in vain. Early in April, prior to 9 April, Mr Sanghvi again enquired of Mr King whether the price was negotiable and was again told that it was not.

Indeed, Mr Lee told me that, by the middle of April, his client, Mr Sanghvi, had decided not to proceed with the transaction at the agreed price. I accept this to be the fact. The purchaser's intent at this time and thereafter was to persuade the vendor to reduce the price to a more acceptable figure. He decided to take no further step in the way of seeking finance or of instructing his solicitor to progress the sale unless and until he had negotiated a reduced price. The evidence does not show when Mr Sanghvi first made this decision. Given the undisputed evidence of his subsequent inactivity I infer that it was in early April, prior to 9 April 2002.

On 9 April 2002, Mr Sanghvi and Mr King spoke by telephone. Much of this conversation was not controversial. It is common ground that Mr Sanghvi said that he was having difficulty raising finance and that he again suggested to the broker that the sale price be reduced, this time to $5.5M. The broker responded that the price was firm. Mr King told me that Mr Sanghvi also discussed obtaining $5M from Sigma which, together with $500,000 of his own funds, would enable him to pay $5.5M and that when this suggestion was rejected he suggested alternatively that the price be adjusted to $6M on the basis that he could get $5.5M from Mayne Health. This, too, was rejected. Mr Sanghvi denied that he made these proposals but I prefer the evidence of Mr King. Likewise, I reject the evidence of Mr Sanghvi that he told Mr King that his accountant was waiting for further financial information from Mr King.

The critical conflict within this conversation, however, turns on what was said about the contractual withdrawal date which was then only 10 days away. Mr Sanghvi's account of what was said is as follows:

"I said, `We haven't yet really chased up Faulding because Thomas [Lee] doesn't have the latest figures and until we get them we can't talk to Faulding'. Either he or I said, `the date for finance is coming up pretty soon'. I said, `We will still chase up Faulding and I can get Thomas to work closely with them, but I don't know if I've time to do all that'. Mr King said, `Look, don't worry, I know Sotto [Kouzas] well and I'll get an extension'. I said, `I'll contact Thomas to make sure things are chased up'."

According to Mr King, the relevant conversation was as follows:

"I repeated that if he was genuine in his attempts to get finance I could approach Kouzas for an extension of time. I was very firm when I said these things to Sanghvi. Sanghvi replied that he did not want an extension of time and that he would go back to Faulding."

This was the last occasion that the two men spoke prior to 19 April 2002.

Of these versions I accept that of Mr King. I have already referred to my conclusion that Mr Sanghvi had, at this time, no intention to complete the transaction at the agreed price. His inactivity after this date does not therefore provide support for his version. He struck me in the witness box as an astute man who was well familiar with commercial transactions. The evidence shows that he is a man who in this case withheld important information from his own accountant and solicitor. He apparently misled his solicitor as to his intentions on 24 April and as to the critical events over the previous month or so, as appears from the inaccuracies in the solicitor's letter of 10 May. Furthermore, he is a man who was prepared to undermine the position of the broker in order to obtain a reduction in the price. In short, his credit as a witness was successfully impugned in this case. Moreover, if his account of the conversation with Mr King is correct it is inconceivable that he would not have followed up the conversation in order to discover what period of extension Mr Kouzas had granted him.

On the following day, Mr Meehan from Sigma telephoned to Mr Sanghvi his valuation of the pharmacy. It was $4.5M.

There is no evidence that after 9 April 2002 Mr Sanghvi took any step in the furtherance of the purchase whether by seeking finance or otherwise. No notice of termination under cl. 1 or cl. 7 was given by 19 April or at all. Mr Sanghvi said this was because he was waiting for the 2001 financial figures and because he believed, as a result of his conversation with Mr King, that the date for getting the notices had been extended indefinitely. I reject his evidence on this matter. I find that he knew that he could not raise finance for the purchase at the agreed price, and so he did not seek further financial information or himself provide financial information in the furtherance of a transaction which he saw as doomed. He simply hoped that the vendor could be persuaded to reduce the price or, perhaps, that the problem would just go away.

After Friday 19 April 2002, Mr Kouzas treated the contract as unconditional. On Monday 22 April, Mr King sent to Jeffery Appel of Schetzer Brott & Appel, the solicitor for the vendor, details of the solicitors acting for the purchaser which he had obtained from Mr Sanghvi prior to 26 March. The solicitor for the purchaser was then Graeme Leonard Bloom of Graeme Bloom Cunningham & Co. It seems that Mr Sanghvi had taken no steps to involve Mr Bloom because the first Mr Bloom knew of the purchase was a telephone call on 24 April 2002 from Mr Appel and his receipt of the draft contract for comment submitted to him by Mr Appel under cover of a letter bearing the same date. The draft did not include Schedules A, B, C or E. In this letter Mr Appel drew attention to the settlement date of 13 May and to the existence of the Heads of Agreement. Mr Bloom was entirely ignorant of the transaction; he had been provided by his client with no copy of the Heads of Agreement. When he contacted Mr Sanghvi for instructions, he was told by his client that he was "only looking at the business and we're still seeking finance". As will appear from what I have written above, this was false. On the same day, Mr Bloom wrote to Mr Appel requesting the missing schedules. Schedules C and E were forwarded to him by letter dated 26 April.

On Tuesday 30 April, at the suggestion of Mr Appel, Mr King forwarded to Mr Bloom a copy of the Heads of Agreement. Mr Bloom then spoke with his client about this document on the same day. In response to his solicitor's enquiry as to whether notice of termination had been given on 19 April, Mr Sanghvi told him that he had spoken with Mr King and obtained an extension of time to procure finance. He said he was keen to proceed and was attempting to obtain finance. This was false, even on Mr Sanghvi's own version of the 9 April conversation. In fact Mr Sanghvi was not keen to proceed at this time at the price of $7M and he was not pursuing finance. And so, Mr Bloom did nothing with the draft contract or otherwise to progress the transaction.

The week moved on, and on Thursday 2 May, Mr Appel telephoned Mr Bloom to enquire about progress. Mr Bloom told him that the settling of the draft contract was premature for he had only recently received the Heads of Agreement and his client had not yet obtained finance. When Mr Appel drew his attention to the fact that notice of termination had not been given, Mr Bloom said that he was instructed that the broker was aware of the position. This instruction, too, was false. On the following day Mr Appel sent a fax to Mr Bloom stating that the vendor would hold the purchaser to the agreement and that settlement was to take place as agreed on 13 May 2002.

Mr Bloom reported this to his client by telephone on the same day, Friday 3 May, but made no response to Mr Appel's letter. Mr Sanghvi contacted Mr King who maintained that no extension of time had been granted for the obtaining of finance. On Tuesday 7 May, Mr Sanghvi engaged Messrs Cornwall Stodart to act in what had now become a contentious transaction. But it seems that Mr Appel was not then informed of this fact because on 8 May he forwarded to the purchaser's former solicitor, Mr Bloom, Schedules A & B to the draft contract and certain other information and requested a statement of adjustments for settlement to take place on the following Monday, 13 May.

On Friday 10 May, Mr Appel wrote by fax to Cornwall Stodart requesting documents for settlement on the following Monday. About 4.50 pm on the same day, after Mr Appel had already left the office, Cornwall Stodart sent a fax to Schetzer Brott & Appel which concluded with the assertion that the Heads of Agreement were not binding on Mr Sanghvi and warning that they would not be tendering documents for settlement on the following Monday and would not attend settlement on that day or on any subsequent date. They demanded the return of the preliminary deposit.

And so when Mr Appel attended his office on the morning of Monday 13 May he was confronted with this letter. He immediately referred it to his client and to Mr King. No settlement took place on that date or on any date and Mr Appel took no further step to prepare for settlement. He told me, and I shall return to this in a little detail, that, if the purchaser had been willing, he could have settled on 13 May.

On Wednesday 15 May, Mr Appel wrote to Cornwall Stodart accepting what he contended was the purchaser's repudiation of the agreement.

The submission of the defendant based on uncertainty and incompleteness must overcome the concern of the Court to give effect to commercial bargains.[11]

The uncertainty relied upon was that the agreement failed to make clear what was the subject matter of the sale. Was it the pharmacy business then conducted at Shop 15 Central Avenue, Laverton or was it the goodwill, assets and stock relating to the business, or only those assets relating to the business which Mr Kouzas owned?

To my mind, the terms of the written document make it plain that the subject matter of the sale was the business itself. This subject matter is sufficiently described on page 1 of the document as "the vendor's interest in the Pharmacy Business conducted at the address named below ..." As is common, the purchase price of $7M is allocated between the three classes of assets of the business: goodwill, fixtures and stock. The figure attributed to stock is said to be the maximum stock value. Throughout the document, mention is made of the pharmacy business. The document deals with matters other than those three classes of assets, namely the lease, the business name and the NHS registration. It is clear beyond doubt that the intent of the document is that, on settlement, Mr Sanghvi will take over the conduct of this continuing business. In short, the subject matter of the sale is the business as a going concern.

Next, it is put that the agreement is incomplete since it does not deal with debtors, employees, accrued liabilities to employees and the apportionment of the liabilities of the business. I reject this submission. The evidence shows that debtors are normally left with the vendor and that, in any event, their omission from the Heads of Agreement simply means that, in this transaction at least, this would occur. The omission of a term relating to employees and the liabilities of the employee to them is likewise of no consequence. It is open to the incoming purchaser to re-employ the staff if he chooses. The liability of the vendor to his staff prior to settlement is a matter for the vendor. Finally, apportionable liabilities will normally be dealt with in the usual way by adjustment upon settlement; if they are not apportionable it is for the vendor and the purchaser independently to deal with their own creditors as they see fit.

Pursuant to the Heads of Agreement the balance of the deposit is payable upon the execution of a formal contract. Clause 4 provides:

"The vendor and the purchaser will as soon as practicable execute a written Contract of Sale to be prepared by the vendor's solicitor."

Mr Appel, the vendor's solicitor, submitted a draft incomplete contract on 24 April, five days after this agreement became unconditional. The omitted details were provided progressively over the following fortnight. The purchaser failed to execute the submitted document, to make any comment or suggestion as to any change in its terms, or to indicate in any way his attitude to the document. In failing to take any of these steps the purchaser is in breach of his obligation under the agreement to do what is necessary to give to the vendor the benefit of the agreement.

When Mr Sanghvi fails himself to perform an act which is a precondition to payment, he cannot rely upon his own default to assert non-fulfilment of that condition. In such circumstances, the law treats the condition as having been fulfilled. And so, in this case, the balance of the deposit was payable at latest on 13 May 2002, the date for settlement.

The purchaser in paragraphs 5G and 6 of the defence and counterclaim alleges that he was entitled to terminate the Heads of Agreement on 10 May 2002 and that he did so by the letter of that date. Such an entitlement must arise, if at all, from an anticipatory breach because the time for settlement had not yet occurred. There are four, or perhaps five, bases relied upon as giving rise to this right to terminate. I shall consider each in turn.

Clause 8 of the Heads of Agreement provides, so far as is here relevant:

"The vendor shall transfer ownership to the purchaser on or before the Settlement Date of the following items relating to the Pharmacy Business: ... (b) all fixtures, fittings and equipment; and ..."

The evidence shows that on 8 May 2002 when Mr Appel forwarded Schedule A to Mr Bloom the list contained the following four items:

"13. IMAGE MAGIC SYSTEM and STAND is on a rental agreement with Kodak and therefore is NOT part of fixtures and fittings. Buyer is to take over rental. ... 33. CWA winter stock is on consignment ... 35. UNIVEX PAYROLL SYSTEM IS NOT OURS. BELONGS TO UNIVEX CORPORATION. We will be returning it to them upon settlement. ... 37. AIR-CONDITIONING UNIT belongs to the shopping centre landlord."

What is put is that these were "items relating to the Pharmacy Business" within the meaning of cl. 8 and that the vendor's obligation was to transfer ownership of them to the purchaser on settlement. This he could not do because he did not have the ownership. Accordingly, on settlement he would be in breach. Moreover, since there was no prospect of his being able to transfer ownership in these items his breach was an anticipatory breach on 10 May.

There are a number of matters which are fatal to this contention. It is sufficient that I list them briefly. First, the operative part of the agreement provides that the subject matter of the sale is "the vendor's interest in the Pharmacy Business". Accordingly, the purchaser is not entitled to ownership if the vendor did not have this interest.

Second, two of the items, at least, could not possibly require the transfer of ownership. Item 37 refers to the air-conditioning which is a landlord's fixture. Item 33 refers to stock on consignment. Presumably, the purchaser would take over the rights of the vendor as consignee. Item 35 refers to a payroll system which is valueless except insofar as it is part of Mr Kouzas' payroll system for his other pharmacies. Item 13 is a machine for copying photographs which was on lease from Kodak. Again, the purchaser may require a transfer of the lease but not ownership which the vendor did not have.

Third, the purchaser, having received Schedule A including these four items, made no query or complaint. Mr Kouzas told me, with respect to Item 13, he would, if required, have purchased the machine from Kodak and transferred it to the purchaser.

Finally, in a transaction of this kind, the non-transfer of four fairly minor items would entitle the purchaser to abate the price, not to treat the contract as having been repudiated.

The Heads of Agreement in cl. 1 contemplate that the purchaser would seek to obtain finance for the purchase. The usual implied obligation of co-operation may require the vendor in such a case to do everything which is necessary to enable the purchaser to have the benefit of the contract[12]. The implied term pleaded in paragraph 2(b)(iii) of the defence and counterclaim is this:

"by 19 April 2002 the Plaintiff would provide to the Defendant all information reasonably required by the Defendant to obtain written approval for a loan to enable the Defendant to purchase the Pharmacy Business."

This term is said to arise from cl. 1 of the Heads of Agreement which I have set out in [2] above. A cursory glance at the pleaded term shows that it is a more onerous one than that which the law would ever imply in a case such as this. It was submitted, and I agree, that this pleaded term would not meet the five requirements for implication laid down in BP Refinery (Westernport) Pty Ltd v Shire of Hastings[13].

What is complained of in this part of the case is that the vendor did not provide the 2001 financial statements. This is true. It is equally true that they did not exist. The purchaser made available all the financial records which he had. The obligation, then, which the purchaser would impose upon the vendor is that of preparing those accounts. To my mind this is not required by any express or implied term of the Heads of Agreement.

This is evident from an examination of the agreement as a whole. Pursuant to cl. 7 which is set out above at [2] the purchaser is entitled to carry out a due diligence assessment of the pharmacy with a very generous exit provision if he is not satisfied with the results. Under this clause, the vendor is obliged to provide "all information to enable the purchaser to undertake the due diligence investigation". It may be supposed that this information would also have been available for the purposes of obtaining finance. It was put on behalf of the vendor, and I think correctly, that there is in this contract no need to imply a term for the provision of other financial information. No further information for the purposes of cl. 7 was ever sought by the purchaser.

Again, there is in the purchaser's case a puzzling feature that, if these 2001 financial accounts were so important, why he did not press for them with greater enthusiasm. I have found that they were requested by Mr Lee on 27 March 2002. Upon his receipt of the package of financial documents on 5 April, Mr Lee telephoned Mr King drawing attention to the absence of the 2001 financial accounts. Mr King told him that he did not have them but he would try to get them. From the purchaser's point of view, both Mr Sanghvi and Mr Lee appeared to be content with the situation as it then stood notwithstanding that the 19 April deadline was approaching. I have rejected Mr Sanghvi's explanation that this was because he thought the deadline was no longer applicable. I infer that his inactivity was due to the fact that he had decided not to complete the contract in any event unless the price was reduced. He did not wish to exercise his right of determination under cl. 1, assuming it be available, in order to maintain his point of contact with the vendor.

Counsel on behalf of the vendor pressed the purchaser's witnesses with the suggestion that the financial information provided on 5 April was sufficient for Mr Sanghvi to have obtained written approval of the loan. I think the burden of the evidence is against this. Even Mr Flack went no further than to say that it would be sufficient only to enable him to recommend approval to the Mayne Health lending department. Later, he said that any approval given on the basis of this financial information would be provisional only, subject to the condition that Mayne Health would be able to validate the figures with the formal financial accounts. To my mind, such a provisional approval would not satisfy cl. 1.

All of this, however, is beside the point. It was clear that any lender, whether it be a bank or a drug wholesaler, would not accept the Central Square Pharmacy alone as sufficient security for any loan which Mr Sanghvi had in mind. Mr Sanghvi was asked to provide financial information with respect to his other assets and liabilities. This he never did. Accordingly, even if the 2001 financial accounts for the pharmacy had been provided to him and to his lender, his loan would not have been approved. Again, I find that the reason that he did not provide this information was that he had by early April 2002 no intention of completing the contract at the agreed price.

I conclude therefore that no term as pleaded is to be implied in the Heads of Agreement and, indeed, no term is to be implied requiring the vendor to provide information other than that which he covenanted in cl. 7 to provide. The purchaser was not on 10 May in breach of any term of the agreement with respect to the provision of financial information. This basis for termination has not been made out.

In paragraph 2(b)(v) of the defence and counterclaim it is pleaded that the Heads of Agreement contained an implied term that: "on or before 13 May 2002 the [vendor] must obtain for the [purchaser] a valid assignment of the Lease" under which the vendor held the premises on which the pharmacy was conducted. In my opinion the agreement contains no such term.

The matter is expressly dealt with in cl. 3 which is set out in [2] above and which is significantly different from the pleaded term. First, the obligation is imposed on both parties. Second, the obligation is to "take all reasonable steps to obtain the Landlord's written consent to the transfer or assignment of the Lease". The agreement then permits either party to terminate the sale agreement if, notwithstanding their best efforts, the landlord refused to agree.

In fact neither party made an approach to the landlord for its consent to the transfer or assignment. Mr Appel said that, as between solicitors, in a transaction such as this it is the role of the purchaser to prepare and submit a draft assignment of lease to the solicitor for the vendor. In this case the leasehold was originally granted by the landlord to one Alberto Frigo. Mr Kouzas bought the business from Mr Frigo in 1999 and took an assignment of the lease from him. There is some uncertainty as to when a copy of the leasehold documents was made available to the purchaser. The bundle of financial records delivered to Mr Lee on 5 April contained some lease documents but it is not clear what they were. Mr Kouzas said it was a copy of the lease. Mr King said it was a copy of the lease to Mr Frigo and transfer of the lease to Mr Kouzas. Mr Lee said it was only the transfer from Mr Frigo to Mr Kouzas which he received. What is clear is that a copy of the lease was sent on 26 April by Mr Appel to Mr Bloom. On 8 May, Mr Appel requested the transfer documentation but it was not provided. As with other aspects of his involvement in this transaction Mr Sanghvi did nothing.

What is then put against the vendor is that, in these circumstances he should have obtained an assignment, more correctly a written consent to the transfer, by 13 May. Evidence was given by Cornelia Fortune, a director of the landlord who was the person who dealt with assignments of leases for the shopping centre. She said that she usually conducts an interview with the prospective assignee during which she enquires about their financial circumstances and other matters and tells them about outstanding rent, rates, taxes and the landlord's plans for the centre. She then has the landlord's solicitors do a credit check on the proposed assignee. When she is satisfied with their financial standing she gives the landlord's approval. Then follows the preparation of the transfer documentation, according to her, by the landlord's solicitors, and the preparation of and delivery of a disclosure statement under the Retail Tenancies Reform Act 1998, provided that this statement is required.

Mr Kouzas said that Mr Appel reported to him his conversation with Mr Bloom of 2 May so that he, Kouzas, knew that the purchaser was not ready to settle. Mr Kouzas said that, had he been told of a change in this position on 10 May, he would have made every attempt to find Ms Fortune to arrange a meeting with Mr Sanghvi for the purposes of obtaining her approval. He described the process whereby he obtained approval as incoming tenant in 1999 in a way that gives me confidence that Mr Sanghvi would have had little difficulty in obtaining consent quickly after an informal meeting. This is particularly the case since it appears he was an experienced and successful pharmacist and probably a desirable tenant.

I am satisfied that, even within such a short time frame, it is more probable than not that Ms Fortune would have given consent over the weekend of 11 and 12 May had she been asked and that she would have provided a written consent on 13 May after her solicitors had carried out a swift credit check. The contract requires Mr Kouzas to do no more than this.

I remind myself that the plea with which I am concerned is that Mr Kouzas was in breach in this respect on 10 May. He was certainly not in breach at the time the letter of that date was sent on behalf of the purchaser.

Next, it is said that Mr Kouzas was in anticipatory breach of contract on 10 May inasmuch as Mr Appel on his behalf had submitted a contract of sale which was materially different from the Heads of Agreement in three respects. The first two respects concern the four fixtures and fittings and the omission of debtors. I will say nothing further about these matters. There is no substance in the suggested disconformity.

The third is that cl. 15 of the draft contract imposed upon the purchaser a liability to pay or indemnify the vendor in respect of GST payable by the vendor as supplier of the goods transferred to the purchaser.

There are a number of reasons this plea must fail. Generally, in order to make out a case of anticipatory breach for this cause, the purchaser must show that the vendor took the position that he insisted on the disconforming contract and would not complete on another basis.[14] The facts here show that the draft contract was submitted for comment and that no comment was made.

Second, the terms of the Heads of Agreement are clear and unequivocal that the nature of the transaction is a sale of a business. The agreement provides for the transfer to the purchaser of all things necessary for the continuing operation of the pharmacy and, it is implicit in its terms, that the vendor will continue to conduct the business until the handover to the purchaser on settlement day. This the vendor did. Accordingly, it is a supply of a going concern within the meaning of s. 38-325(1) of the GST Act. Accordingly, no GST is payable in respect to business assets sold. Clause 15 of the draft contract does not therefore have the suggested consequence.

In final submissions, counsel for the purchaser appeared to raise a fifth and unpleaded basis for the suggested right to terminate on 10 May for anticipatory breach. It was that the vendor "was, unbeknown to the [purchaser], not ready and willing in the relevant sense to complete the contract on 13 May 2002". I shall deal later with the factual basis for this contention. I am not satisfied for the reasons which I there set out that the vendor was, on 10 May, not ready and willing to settle on 13 May 2002. As a basis for anticipatory breach, the purchaser must show that the vendor was entirely disabled from settling as and when required by the contract. I accept the evidence of Mr Kouzas and Mr Appel that they could have taken the necessary steps to settle had the purchaser himself performed his concurrent obligations to the same end.

The allegation of the purchaser in paragraphs 10-17 of the defence and counterclaim is that an estoppel or waiver arises by reason of the representation by Mr King made as agent for the vendor on 9 April. The representation as pleaded in paragraph 11 is as follows:

"the defendant was no longer bound by any obligation which he had to procure finance or to give written notice of termination of the Heads of Agreement by 4.00 pm on 19 April 2002."

I have set out at paragraphs [24] and [25] the conflicting accounts of this conversation as well as my findings. In any event, the words which Mr Sanghvi attributed to Mr Kouzas do not carry the representation alleged. On this version, the broker expressed confidence that his principal would agree to some unspecified extension of time for the operation of cl. 1. He did not say that an extension had in fact been granted or that he was himself granting an extension or what the extension was.

Moreover, I do not find that Mr Sanghvi acted upon any such words in making his decision not to give a determination notice under cl. 1 by the due date. The evidence shows that from early April Mr Sanghvi did nothing at all to pursue the sale and nothing to seek finance. His inactivity is explicable from his decision not to settle at the agreed sum and yet to keep the contract on foot in the hope of renegotiating the price. It may be, too, that he knew he had no right to terminate under cl. 1 in any event since he had not himself made an immediate application for a loan and had not provided possible financiers with any of the financial information which they sought concerning his financial situation generally. Accordingly, the two preconditions for termination on 19 April or any extended date had not been satisfied.

I reject the defences based on estoppel and waiver.

The counterclaims in which Mr Sanghvi sets up the same representation as misleading and deceptive conduct must meet the same fate. I do not find that the representation was made or that Mr Sanghvi relied on anything said by the broker in deciding not to give notice to terminate under cl. 1.

It is not, therefore, necessary that I address the further difficulties which the claims must overcome: whether the representation was as to an existing matter or as to a future matter, whether it was false or misleading, whether Mr King was then speaking as the agent of Mr Kouzas, and whether the relief sought is appropriate. I am far from confident that these difficulties are surmountable in this case, but it is not necessary that I go further and I do not do so. These counterclaims are not made out.

In paragraph 17A of his defence, Mr Sanghvi alleges that the vendor is "unable to bring or maintain this proceeding by reason that on 13 May 2002, alternatively on and between 10 May 2002 and 13 May 2002, the [vendor] was not ready or willing to perform his obligations under the Heads of Agreement". There are seven respects in which the vendor is said not to have been ready and willing. Some of which have been mentioned already.

(a) to obtain the landlord's consent to the assignment of the lease;

(b) to obtain an assignment of the lease;

(c) to undertake a stocktake;

(d) to discharge the "securities encumbering the lease, fixtures, fittings and equipment to be transferred on 13 May 2002;

(e) to acquire the "equipment relating to the Pharmacy Business" which the vendor did not own;

(f) to terminate the employment of staff employed in the pharmacy;

(g) to apportion outgoings relating to the business.

The principles relied upon by the purchaser are those set out in Foran v Wight[15]. This was in fact a case of actual rather than anticipatory breach as is the present case, but the members of the High Court considered the principles which were applicable to a case of anticipatory breach.

In considering the application of a principle that a plaintiff must be ready and willing it may be useful to recall the relevant chronology of this case as I have found it.

* Friday 10 May 2002. The purchaser by his solicitor's letter of that date made a clear and unequivocal statement that he would not settle on the due date, 13 May or at all. This amounted to an anticipatory breach of the contract. Although the letter was received at the office of the solicitors for the vendor late on the Friday, it was not brought to the attention of Mr Appel or Mr Kouzas until the following Monday morning.

* Monday, 13 May 2002. The purchaser failed to settle. This was an actual breach of contract. The contract remained, nevertheless, on foot since the vendor had not elected to terminate it.

* Wednesday, 15 May 2002. The vendor by his solicitor's letter of that date accepted the purchaser's repudiation of 10 May 2002, thereby terminating the contract.

* 23 May 2002. The vendor commenced this proceeding seeking the balance of the deposit and damages for loss of the bargain.

It was common ground before me that the plaintiff vendor in a case such as the present must show that he was ready and willing to perform the contract except to the extent that his performance was excused. The areas of contention in this case were the date upon which the vendor had to be ready and willing and whether he had discharged the burden of showing readiness and willingness on that date.

On behalf of the purchaser it was contended that the time at which readiness and willingness must be shown was 13 May 2002, the date of completion. It was submitted, correctly in my view, that the purchaser had not before that date given a clear and unequivocal intimation that he would not settle on the due date. For such an intimation to operate to excuse the vendor from being ready and willing to perform, the vendor must act upon the intimation[16]. The evidence in this case shows that the vendor and his solicitor did not treat the telephone conversation of 2 May as such an intimation. Moreover, since the letter of 10 May which did in fact contain the intimation was not brought to their attention before the morning of 13 May, there is no necessary element of reliance by them prior to that date[17]. It follows that up to the morning of the date for settlement the vendor was contractually obliged to perform his obligations when the time for their performance arrived. And this time arrived on Monday, 13 May in terms of the Heads of Agreement.

But this is not to say that the time for performance expired at midnight on that day. Had the purchaser changed his mind on the Monday or the following day and insisted upon his right to settle, the vendor could not have refused to do so for the contract remained on foot. It follows from this that the vendor must show himself ready and willing to settle on the due date and thereafter until the contract was terminated on 15 May. This is subject to the dispensation from readiness which operated as a result of the intimation received on the morning of 13 May.

The question of readiness and willingness must be determined in the context of the nature of the obligations which the contract requires. In a substantial sale of a business such as the present, solicitors were acting for both parties. The conventions and practices of solicitors in settling such a transaction must be brought to account. I mention this because it is clear on the evidence that settlement might be expected to take place at the office of the solicitors for the vendor at a time appointed for the purpose after consultation with the solicitors for the purchaser. It is normal for the cheque or cheques to be drawn by the purchaser's solicitors in the amount directed by the vendor's solicitors and in the light of the statement of adjustments prepared by the purchaser's solicitor. These practices would mean that the solicitors for the vendor would reasonably expect to have some notice of the purchaser's arrangements to settle prior to the time of settlement, a notice which was entirely lacking when Mr Appel's office closed on Friday, 10 May 2002.

Furthermore, the judgments in Foran v Wight[18] show that the Court should be careful before finding a party is not ready and willing. To satisfy this requirement the plaintiff must show that he is not presently incapacitated from performance when it falls due and is not indisposed to do, when the time comes, what the contract requires[19]. Furthermore, the question must be determined on the assumption that the purchaser was then himself ready and willing to perform. In this case, such an assumption itself includes an assumption that the purchaser had executed a formal contract as the Heads of Agreement required him to do, had submitted an adjustment statement as requested, had taken steps to satisfy the landlord of his suitability as assignee of the lease as required by cl. 3 of the Heads of Agreement and, probably, had submitted a form of assignment of the lease or had accepted that this might be attended to by the solicitor for the landlord. Furthermore, he must be taken as being ready and willing to carry out the stocktake before handover for he or his representative is by convention required to be present when this is done.

Having made these assumptions, I turn to the seven respects in which it is suggested that the vendor was not able to complete. It was not suggested that he was unwilling to settle. The evidence shows beyond any doubt that the vendor would have been ready and able to obtain the lessor's consent to the assignment. Indeed, it seems very likely that consent would have been forthcoming and the assignment executed all by 13 May. Likewise, Mr Kouzas said, and I accept, that he would have been able to have the stocktake carried out on Sunday 12 May. With respect to the fixtures, fittings and equipment, I have concluded that, under the Heads of Agreement, the vendor was obliged to transfer to the purchaser only his interest in these assets. There is no evidence to contradict his evidence that he was able to transfer this interest. As to encumbrances, Mayne Health had provided assistance to Mr Kouzas upon his purchase of the pharmacy in 1999. He said that he had borrowed money for the purpose and that the repayment of this loan was secured in some way over the assets of the pharmacy. He said, however, that the discharge of this security was a straightforward matter and that it would have been achieved from the funds which, it must also be assumed, the purchaser would provide on settlement. The sixth matter related to the termination of staff. Again, it must be assumed that this would have been the subject of some pre-settlement discussions for it is very likely that Mr Sanghvi would have wished to retain some or all of them. The termination of the contracts of those whom he did not wish to retain would have easily been achieved by 13 May and their entitlements paid to them at that time or soon thereafter. The same might be said about the adjustment of apportionable outgoings. These would be dealt with in the statement of adjustments to be prepared by the solicitors for the purchaser and assumed by the purchaser following this adjustment. Those accounts which were not apportionable were the responsibility of the vendor and were of no concern to the purchaser.

I conclude, therefore, that there is no substance in the allegation contained in paragraph 17A. I am satisfied that the vendor was ready and willing to perform his obligations under the Heads of Agreement on 13 May 2002 and at all times thereafter up to the date of termination on 15 May.

I conclude from all of this that the contract remained on foot until 15 May 2002 when it was terminated by the vendor's acceptance of the purchaser's anticipatory breach by letter of 10 May. The vendor was at all material times ready and willing to perform his obligations under the Heads of Agreement. He is entitled to recover such damage as he may prove to have flowed from the purchaser's wrongful act. The counterclaim of the purchaser against the vendor and the broker must be dismissed.

[1] Further amended defence and counterclaim dated 19 February 2003

[11] See Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] VicRp 55; [1994] 2 VR 106 at 130, 150 per Brooking J.

[12] Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596 at 607, per Mason J.

[14] Shevill v The Builders Licensing Board [1982] HCA 47; (1982) 149 CLR 620 at 625-6, per Gibbs CJ

[16] Peter Turnbull and Company Pty Ltd v Mundus Trading Company (Australasia) Pty Ltd [1954] HCA 25; (1954) 90 CLR 235 at 247, per Dixon CJ.

[17] See Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 412, per Mason CJ; at 420, per Brennan J; at 434, per Deane J.

[19] Psaltis v Schultz [1948] HCA 31; (1948) 76 CLR 547 at 560, per Dixon J; Foran v Wight [1989] HCA 51; (1989) 168 CLR 385 at 425, per Brennan J.

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Judgment (119 paragraphs)

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Cases Cited (6)